December 30, 2005

Estimating malpractice costs

The insurance industry has long argued that huge losses from malpractice suits -- now running more than $7 billion a year -- have forced it to hike malpractice premiums, which more than doubled last year in some cities and for some specialties.

But a new study by a consumer group shows that losses reported to state regulators -- the figures often cited by the industry -- were much larger than losses actually paid during a nine-year period.

The study, by the Foundation for Taxpayer and Consumer Rights, a Santa Monica, Calif., advocacy group, found that from 1986 to 1994 the industry reported to regulators losses of $39.6 billion but actually paid only $26.7 billion, 31 percent less. The losses were overstated in each of the nine years.

That's quite an overstatement when you're dealing with billions of dollars. But it appears one of the biggest problems in the malpractice puzzle is a lack of information:

Fueling frustration on all sides: a surprising lack of data available from the nation's patchwork system of state regulation. Two years ago, the Government Accountability Office studied the problem and said that although insurance losses "appeared to be the greatest contributor" to higher premiums, a "lack of comprehensive data . . . prevented us from fully analyzing the composition and causes of those losses." The study concluded that Congress "may want to encourage" state regulators to collect data on "the frequency, severity and causes of losses on medical malpractice claims."

Even how much doctors actually pay in premiums is not readily available. Annual rates are kept by individual state insurance departments, and all sides rely on an industry newsletter, Medical Liability Monitor, based in Chicago, to collect data.

With all the moaning and complaining about malpractice costs, why aren't doctors demanding more information? The article states that many malpractice insurance companies are owned by physician groups. Don't they have a stake in what's actually driving malpractice costs? Or maybe their best interests are served in claiming it's the size of the awards and limiting those at the expense of patients.

And costs aren't as high as we think -- go read my post on U.S. malpractice awards compared to other countries.